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Equity Conversion Mortgage (Reverse Mortgage) |
Home Equity Conversion
Mortgage (Reverse Mortgage) - The Home Equity Conversion Mortgage
(HECM) is a reverse mortgage insured by the Department of Housing
and Urban Development (HUD). It is the most popular reverse mortgage
utilized today. The HECM allows homeowners to unlock a portion of
the equity in their home without having to make a monthly repayment
on the amount borrowed. Any amount borrowed, along with accrued interest
and fees, is paid in one lump sum when the last borrower in the home
is no longer the primary resident.
When the last borrower no longer resides in the property, the estate
can elect to refinance the reverse mortgage debt and keep the home,
or the home can be sold to pay off the debt and any remaining equity
will go to the estate (or heirs).
There are some qualifications that need to be met by the homeowner:
1). Both borrowers in the home must be 62 or older 2). They must own
their home 3). The amount available through the reverse must be enough
to pay off any existing mortgage balance on the home 4). All borrowers
must complete a counseling session conducted by a government appointed
agency.
There are no credit score requirements, loan to value calculations,
or income requirments. The amount that the homeowner will be able
to borrow is a function of: 1). Age of the youngest borrower in the
home 2). The lesser of FHAs lending limit or the homes appraised
value 3). An interest rate (called the HECM expected rate). When these
criteria are entered into a reverse mortgage calculator, it will calculate
an amount that the borrower(s) will be able to access.
The amount that they can borrow can be taken in various ways. All
of the monies can be converted to pay them monthly; any or all of
the monies can be taken at closing; it can be placed in a line of
credit to be used when needed; or they can elect to do any combination
of the three above.
Because this loan must be the first lien on the home, any existing
mortgage balance must be paid off. This is one of the greatest benefits
of this program, if enough equity can be accessed to do so. Because
there are no payments required on the amount borrowed, the homewoners
can pay off their mortgage and never have to make a monthly loan payment.
Any income that was being used to pay a monthly payment would increase,
sometimes dramatically.
Additionally, if there is money above and beyond the existing mortgage
balance, it can offer income to the borrowers to use in whatever way
they want. There is no restriction as to how they use the money.
Currently only adjustable rates are offered on reverse mortgages
and borrowers do have the option of either a monthly adjustment
or a yearly adjustment on the interest rate.
This is an excellent tool for the senior population to use to help
minimize expenses. In some cases this can help a person stay in
their home until they need to move to an assisted living facility
or move in with relatives.
COSTS OF THIS LOAN
The fees charged on this particular program are regulated by HUD
and most cannot be altered, including the interest rate. The fees
on this loan are as follows: 1). A maximum of 2%, based on the lesser
of the home's appraised value or FHA's lending limit, is charged
by the originator 2). Traditional closing costs such as title, escrow,
appraisal, termite, etc. 3). 2% is charged by HUD, on the lesser
of the home's value or FHA's lending limit, for their mortgage insurance
premium pool 4). A monthly servicing fee charged by the servicer
of the loan usually in the amount of between $25 and $35 per month
(which is initially set aside from the proceeds of the reverse and
added to the loan balance as the each month passes).
Each county in the nation will have different lending limits and
home values, so the actual dollar amounts charged are not universal.
A loan in Orange County California will more than likely be more
expensive (in terms of dollars) than a loan in Oklahoma. The percentage's
used in the calculation (max 2% originator, 2% HUD) are universal.
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